Correlation Between AutoNation and Cato

Can any of the company-specific risk be diversified away by investing in both AutoNation and Cato at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining AutoNation and Cato into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AutoNation and Cato Corporation, you can compare the effects of market volatilities on AutoNation and Cato and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in AutoNation with a short position of Cato. Check out your portfolio center. Please also check ongoing floating volatility patterns of AutoNation and Cato.

Diversification Opportunities for AutoNation and Cato

-0.79

Correlation Coefficient

AutoNation  Cato

Pay attention - limited upside

The 3 months correlation between AutoNation and Cato is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and Cato Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cato and AutoNation is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on AutoNation are associated (or correlated) with Cato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cato has no effect on the direction of AutoNation i.e., AutoNation and Cato go up and down completely randomly.

Pair Corralation between AutoNation and Cato

Allowing for the 90-day total investment horizon AutoNation is expected to generate 0.59 times more return on investment than Cato. However, AutoNation is 1.71 times less risky than Cato. It trades about 0.04 of its potential returns per unit of risk. Cato Corporation is currently generating about -0.03 per unit of risk. If you would invest  14,598  in AutoNation on September 26, 2024 and sell it today you would earn a total of  2,786  from holding AutoNation or generate 19.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

AutoNation  vs.  Cato Corp.

AutoNation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AutoNation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AutoNation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cato

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cato Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with AutoNation and Cato

The main advantage of trading using opposite AutoNation and Cato positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoNation position performs unexpectedly, Cato can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cato will offset losses from the drop in Cato's long position.

The idea behind AutoNation and Cato Corporation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.